How Does the Crisis Affect The Gold Price?
The price of gold and the corona virus have had one thing in common in the last few weeks: the curve goes steeply NORTH! There is currently no stopping both the spread of the virus and the development of the gold price. There are, however, serious differences in one point: While states are trying to curb the rapid spread of the corona virus, Italy has already closed its borders and the whole country is already in quarantine, even the big banks are now behind the rising gold price. Instead of putting the brakes on and, as usual, countering this with short sales of paper gold, everyone is betting on further increases in prices and thus fueling the course fireworks. If you look even deeper and look at the enormous explosive force of the current crisis, gold is still drastically undervalued.
How does the crisis affect the gold price?
We have a toxic mix of: no or negative interest rates, falling stock prices, high levels of debt, no return on investments that seem safe, such as government bonds, and a general panic and uncertainty. Historically, investors in such situations always use raw materials, i.e. oil and gold.
But there is a problem with the oil. On March 9th, Monday, which was so devastating for share prices, the price of crude oil fell by 34%. This is the biggest drop in prices in one day in the history of the crude oil market. The price of oil has halved since the beginning of the year. If you calculate the crude oil price in grams of gold, we are currently at an all-time low. Crude oil has never been cheaper than now!
This slump has a political background, of course, but it’s not about an agreement, but rather a lack of agreement. Since the outbreak of the corona virus and reduced oil demand in China, the crude oil price has been under pressure since the beginning of the year. The OPEC countries wanted to support the oil price through a coordinated cut in production.
The talks between these countries failed at the weekend, and on the contrary, Saudi Arabia even wants to increase its production and thus further reduce the oil price. Nobody benefits from a crude oil price of $ 30 a barrel! In the USA, this just covers the funding costs, which are much higher here than in Saudi Arabia. This only shows how bad the imbalance is in the global economy.